Abstract [en]

As the share of weather-dependent generation and the electrification of products increase, new challenges arise as supply and demand of electricity becomes more variable and the balance between them more difficult to manage. A system where demand adapts to the available supply has been envisioned as part of the solution to this problem, and price signals that can incentivize such system are under constant development.

In markets with retail competition, where the distribution and sales of electricity are separated, consumers may be faced with multiple price signals. Inconsistencies between these signals could in theory distort the incentives for demand response and demand side management. We explore this issue by investigating how hourly retail supply contracts and time-of-use distribution network tariffs may vary in relation to each other, and how appropriate hourly retail supply contracts are to use as a signal for demand response in local distribution networks.

Our analyses show that the incentives for demand response provided by a time-of-use distribution tariff counteracts the incentives given by hourly retail supply contracts in a substantial proportion of the hours over a year. The extent of this counteraction is more severe for consumers who have less possibilities to engage in demand response over the course of a day e.g. due to a lack of technical solutions for scheduling their consumption. Our results also indicate that the hourly wholesale price of electricity may be inappropriate as an incentive for demand response from a local distribution network balancing perspective. We conclude that if distribution tariffs and retail supply contracts are to properly incentivize demand response they need to be more coherent and better reflect the actual situation in the local distribution network.